EXPERT OPINION Businesses are moving to platform-powered ecosystems

B2B platforms are very different to launch and to scale from B2C platforms. Ironically, 15 years ago, many people felt that B2B platforms would be more successful than B2C platforms. The opposite happened, partly due to the fact that many large firms were not prepared to relinquish control of their business relationships to a platform, or could not agree to governance principles. Small firms were rarely connected to the internet at the time and, therefore, could not participate.

While some major firms are still reluctant to participate, small and medium-sized companies are now online. They have come to realize that platforms offer unprecedented access to global markets, and they have helped lead growth in B2B platforms. This is especially true in China, where thousands of small businesses in remote locations have used platforms such as Alibaba to sell to other companies.

CRITICAL MASS

With ubiquitous connectivity, reaching critical mass is now less challenging. A B2B platform will often start with a very specific purpose. Careful targeting of professional trade bodies, professional associations and organizations can help attract relevant buyers and merchants on the platform.

Many large companies, for example, already have inventory and a customer base, so it is relatively easy to move them both to a platform. What is beginning to happen now is that these companies – like Amazon before them – are realizing the benefits of allowing third parties to sell to their customers on their platforms.

PLATFORM-POWERED ECOSYSTEMS

Some firms are able to combine traditional business models with platform models so that the whole company becomes more valuable than the sum of the parts. Amazon, for example, has combined the strength of a traditional online business model that requires warehouses and inventory with the scalability of a platform model, where third-party merchants compete against Amazon’s own products. Such a platform-powered ecosystem offers the best of both worlds, as Amazon has control of its value chain for its ecommerce proposition while benefiting from the long tail of products offered by other merchants. As a result, it has become the ultimate ‘one-stop shop.’

Many firms, however, find that combining business models is difficult because they require different skillsets and mindsets. Platform models are more open, as customers participate in the co-creation of value. Linear models, on the other hand, enable complete control of the user experience across the value chain. In addition, combining business models may add a competition element, as sellers on the platform offer products that compete with the existing traditional business.

These tensions are understandably difficult to overcome; no one wants to aid a competitor. But I believe that we will see more of these relationships as companies realize that if they do not control their industry ecosystem someone else will, much to their detriment.

BALANCING ACT

I believe Amazon achieves the best of both worlds. Amazon combines the advantage of controlling some aspects of its business while benefiting from market discovery, because its third-party merchants may launch new, innovative products and services that Amazon would not have conceived of otherwise.

Once Amazon sees something working in the marketplace, it may internalize some of the benefits, but its marketplace remains open.

All firms must deal with the fear of cannibalization. Structuring a platform so that it complements the rest of the business, instead of becoming a substitute to existing offerings, is the balancing act Amazon has mastered in B2C. Now, with its new and growing Amazon for Business offering, it is trying to replicate that success in the B2B world.

TRUST IS CHANGING

Another important factor in establishing a platform-powered ecosystem is trust. The concept of trust and the way we trust people has changed dramatically. A decade ago, who would have trusted renting their apartment to strangers for a month?

Airbnb solved the trust problem by carefully screening both renters and landlords and offering both parties insurance. As a result, insurance companies are beginning to offer policies covering all platform participants. More importantly, platform companies are implementing fairly strict rules that involve background checks and spell out when a firm could be denied access for bad behavior.

These governance principles are increasingly embedded in B2B platforms. Buyers don’t want to be left stranded if a transaction goes bad, while vendors want reach and the certainty of payment. B2B platforms are increasingly able to offer high-quality matching and transaction support.

With these new safeguards in place, and backed by enhanced security against hacking by cloud providers like Microsoft and Amazon, companies are feeling more comfortable about moving their business online. With B2Bs’ deeper financial resources compared to B2C startups, I fully expect B2B platforms to proliferate, driven by a desire to grow their business and a fear of getting left behind in the new world of platforms.